Florida Life, Health Variable Annuity Pre-Licensing Study Manual Review 2013

Front 1

Basic Insurance Principles:
Insurance is based on what (2) fundamental Principles?

Back 1

1. spreading or pooling of risks "loss sharing";
2. Law of Large Numbers.

Hint 1

Explanation of "risk pooling"
By spreading a risk, or sharing a possibility of a loss, a large group of people can substitute a small certain cost for a large unknown risk.

Front 2

What forms of insurance rely of risk pooling and the law of large numbers?

Back 2

ALL FORMS: Life, Health, accident, property, and casualty.

Hint 2

These 2 principles form the foundation upon which insurance is based and allow for its successful operation.

Front 3

Concept of Risk:

what Role insurance play in society, generally?

Back 3

Insurance replaces the uncertainty of risk with guarantees.

Hint 3

What guarantees?

Front 4

What does the word "risk" mean?

Back 4

Uncertainty regarding Loss.

loss associated with risk is characterized by lessening Value.

Hint 4

Ex; the inability to work and earn a living due to disability; OR
loss of a family's income due to the death of the provider.

Front 5

What are the 2 Classes of Risk?

Back 5

Speculative risks-a chance for loss & one for gain

pure risks-involve ONLY CHANCE OF LOSS

Hint 5

speculative risk ex; buying a lottery ticked
Pure risk ex; Death

Front 6

What is the Risk Involved with Life Insurance?

Back 6

When Death Will occur?

Hint 6

Loss can result id death is Premature OR comes too late!

Front 7

What is the Risk associate wit Health Insurance?

Back 7

Unlike life insurance, the risk is not when but IF
- illness or
-disability will occur.

Hint 7

Losses Associated with Health risks include: medical costs and loss of income.

Front 8

What is the risk involved with an annuity?

Back 8

The risk is living too long and outlasting one's income!

Front 9

How do annuities cover the risk of living too long?

Back 9

Annuities cover the risk by paying a GUARANTEED income to the annuitant for LIFE.

Hint 9

* this is the ONLY method of obtaining a guaranteed income.

Front 10

What are the Other Factors giving rise or causing Risk?

Back 10

Concepts of Perils & Hazards

Hint 10

Perils and hazards in conjunction cause Risk.

Front 11

Distinguish between the concepts of perils and hazards with regards to Causing risk.

Back 11

Peril- Immediate specific event causing loss and giving rise to a risk.

Hazard- ANY factor that gives rise to the peril.

Front 12

What are the 3 basic types of hazards (for the purposes of life and health insurance)?

Back 12

physical
moral
morale

Front 13

Define and provide examples of the (3) Basic types of hazards:

Back 13

physical- indiv. characteristics that increase the chance for peril;

moral- tendencies ppl may have increased risk and bear greater chance at loss ( drink, smoke, skydive)

morale- indiv tendencies BUT arise from attitude or state of mind causing indifference in attitude. (mental)

Hint 13

physical-may exist b/c: physical condition, past medical hist, or conditon at birth (blind deaf);

moral- these give rise to more claims in health insurance than death!

morale- the 'indifference" increases chance of injury or death (driving recklessly)

Front 14

What factors are considered in the Treatment of Risk?

and what is determine?

Back 14

Treatment varies greatly depending on: , Degree of potential loss, Individual, Situation. (DIS)

Hint 14

Determines "How Risks are Treated"

Front 15

What are the (4 )Basic Options to Treat Risk?

which method is MOST effective?

Back 15

(ARRT)
Avoidance. AVOID the Risk
Reduction. REDUCE of risk.
Retention. RETAIN the risk.
Transference. TRANSFER the risk.

Hint 15

Transferring the risk is the most effective way to handle risk b/c the loss is borne by another party (no liability)

Front 16

Explain the Concept of Risk transference and explain
-why Insurance is most common method of transferring risk?
-how this is accomplished?

Back 16

Though purchasing insurance will NOT eliminate risk of death or illness...it DOES relieve the affected party (individual or group) of the losses these risks bring.

This is because Insurance satisfies both economic and emotional needs.

Hint 16

Insurance REPLACES the uncertainty surrounding risk with the assurance of guarantees, AND transfers financial consequences of death, illness, or disability to the insurer.

Front 17

What are the Rule Elements of Insurable Risk and what main principle is considered?

Back 17

the following characteristics (elements MUST be evident before a Pure Risk can be insured:

Checklist:
-loss due to chance
-loss must be definite and measurable
-loss must be predictable

Hint 17

Insurance offers one effective way to handle risks, however not ALL risks are insurable

Front 18

Define "Human Life Value"

Back 18

-the value today
-of an individual's
-future earnings
-devoted to that individual's
-dependents.

Hint 18

"earning potential' is the sum of one's net future earnings OR

the dollar VALUE of an individual's future earning capacity.

Front 19

What is the "true significance" of the earning potential concept forming the basis of the purpose and function of insurance?

Back 19

the true significance of the earning potential extends beyond the individual to those who DEPEND on that individual for their FINANCIAL SECURITY.

Front 20

What have Life and Health Insurance evolved to Provide?

And How is this accomplished?

Back 20

"A practical solution to the economic losses associated with:
- Death
-Sickness
-Accidents

Hint 20

through the insurance POLICY.

Front 21

Define "Insurance Policy"

what (2)basic concepts does insurance lie?

Back 21

A device to accumulate funds to meet these "losses"

Hint 21

Insurance is base on risk pooling and law of large numbers, the principles which allow insurers to spread risks among thousands of individuals to Predict losses with REASONABLE accuracy.

Front 22

T/F:

"Both pure risks and speculative risks ARE insurable?

Back 22

TRUE.

Front 23

Buying Insurance is a method of dealing with or "Treatment of the Risk." Under which method does this action comply?

Back 23

"Transferring Risk" (the most effective)

ARRT

Front 24

Describe the FUNCTION of Insurance:

Back 24

It spreads financial risk over a large group to minimize the loss to any one individual.

Front 25

What are the (3) Main Types of Insurers (Generally):

Back 25

Private insurers
Government insurers
Self-Insurers

Front 26

What is the Hierarchy of Insurance Organizations:

Back 26

Insurance
Classification?
-Private v. Government
-Many Categories of Insurance Providers?
-Insurance Plans
-Insurance Procedures

Front 27

Define the Term "Reinsurers"

What actually occurs?
Context of occurrence?
Rationale?

Back 27

A specialized branch of the insurance industry where because they insure insurers. (2 companies sharing risk).

Usually takes place to LIMIT Loss any one insurer would face should a very large claim become payable.

Hint 27

Rationale: To enable a company to meet certain objectives (favorable underwriting, mortality results, etc.

* The company TRANSFERRING the risk - ceding,

the one assuming the risk =reinsurer

Front 28

Generally describe the entity "Lloyd's of London:

Back 28

An Association of Individuals and companies that individually underwrite insurance, (like NYSE)

Front 29

What is the primary purpose of a Risk Retention Group?

Back 29

(RRG) A mutual insurance company formed to insure people in the same business, occupation, or profession.

Front 30

"State Guaranty Associations or funds" General Rule:

Back 30

All states have established these to -support insurers
-protect consumers in the event and insurer becomes "insolvent".

Hint 30

Generally there is a required % per policy for benefits to be paid in the event the company is unable to pay it's claims. Funded by insurance companies by assessment.

Front 31

What is the purpose for regulation of the insurance industry?

Back 31

To promote the public welfare, the insurance industry is regulated by a number of authorities.

Front 32

What authorities are involved with the regulation of the insurance industry?

Back 32

- States & their Departments of Insurance;

-NAIC and model legislation;

-the Federal Government through the application of antitrust laws and the Fair Credit Reporting Act.

Front 33

An insurance company organized and headquartered in Florida can be described as what type of company in Florida?

Back 33

Domestic

See Note

Hint 33

Question to Ask:

Where is the Home Office Located?

Front 34

T/F

The NAIC is empowered to prosecute and punish criminal violators in the insurance industry?

Back 34

False.

*The National Governmen tCANNOT regulate State matters.

Front 35

A licensed agent, legally represents which interested party in an insurance transaction?

Back 35

The Insurer- The Company

Ex-

Hint 35

When money exchanges hands in the process of enrollment, the agent working for a company acts as the insurer.

Front 36

In addition to the State, the organization that regulates variable life and variable annuities is the:

Back 36

Securities and Exchange Commission (SEC)

*

Hint 36

INVESTMENT PRODUCTS

Front 37

In Florida, properly licensed and appointed agents MAY act as brokers in insurance transactions, in which case they MAY legally Represent:

Why?

Back 37

The Applicant AND

the Insured

Hint 37

Only B/C it does not state that he is working for,

or being being paid by the company

Front 38

Distinguishing Characteristics Unique to Insurance Contracts include:

(ooh nicca uvee)!!

Back 38

U. Unilateral

N. Not Personal
I. Insurable Interest
C. Conditional
A. Aleatory
A. Adhesion

U. Utmost good Faith
V. Valued or
I. Indemnity

Hint 38

Think of Dave and his Character making me sayyyy owee! And we wanna binding contract...as in down the aisle:

Front 39

What are the Elements Associated with ALL Legal Contracts?

Back 39

Issue Checklist:

Offer
Acceptance
Consideration
Legal Purpose
Competent Parties

Hint 39

These general elements + The Characteristics of Insurance Contracts= Elements of and Insurance Contract!

Front 40

The Authority that an insurer gives its agents by means of the agents contract is known as ...

Back 40

Express Authority (written)

* Consider parole evidence Rule

Front 41

An insurance contract is prepared by one party, the insurer, rather than the negotiation between the contracting parties. The Characteristic of Insurance contracts described here is:

Back 41

the insurance contract is a contract of ADHESION

Front 42

Y/N.

Is the following statement regarding "insurable interest" Correct:

A policy obtained by a person without an insurable interest can be enforced.

Back 42

NO. This does not represent a true contract or one that has taken effect.

Front 43

The term "Conditional" is a distinguishing characteristic of an insurance contract.

Why?
Example.

Back 43

Because a condition requires the completion of some act not generally required by ALL other contract types.

Hint 43

Ex; One MUST supply a death certificate prior to insuring a life insurance policy.

Front 44

What is the majority Rule in most states re; "utmost good faith" in insurance contracts?

Back 44

General Rule: Most state insurance Laws consider statements made in an application for an insurance policy to be representations, not warranties.

* note*

Hint 44

Significance her is The truth is not GUARANTEED!

Front 45

Explain the general requirement of the Parol Evidence Rule:

Back 45

A Written contract CANNOT be changed by oral evidence.
A change would require and Amendment (which is in writing)

Front 46

"Legal Consideration" in insurance law is defined as:

Example.

Back 46

Money paid.

Hint 46

The payment of the initial premium

Front 47

An "insurable interest" MUST exist ___________ with life and health contracts?

Back 47

Rule: At the Inception of the policy.

*note*

Hint 47

This is necessary so that the Underwriters may perform their job duties: review and make a determination.

Front 48

"Waiver" can be defined as:

Back 48

the voluntary relinquishment of a known right.

*note*

Hint 48

"waive goodbye"

Front 49

What is the term that is now ILLEGAL to use when discussing insurance in the state of FL and forbidden to use?

Back 49

"vanishing premium"